Financial Accounting: IFRS, 11e, GE
Harrison/Horngren/Thomas/Tietz/Suwardy
Test Item File
Chapter 2: Recording Business Transactions
2.1-1 A journal entry is a record of an event that has a financial impact on the business that can be reliably
measured.
2.1-2 Every transaction has two sides—you give something and you receive something.
2.1.3 It is the collection of cash, not the performance of the service that earns revenue.
2.1-4 Accrued Salaries Payable is a liability account.
2.1-5
The Retained Earnings account represents the excess of net income over dividends retained in the
business since its inception.
2.1-6 The Dividends account indicates an increase in Share Capital.
2.1-7 Income statement data appears as revenues and expenses under Retained Earnings.
2.1-8 The purchase of office equipment for cash would increase both an asset and a liability account.
2.1-9 Which of the following is NOT a business transaction?
A) The company sells goods for cash.
B) The company buys land for cash.
C) The company hires a new president.
D) The company pays a dividend to its shareholders.
2.1-10 A business transaction has occurred when:
A) an event affects the entity’s financial position.
B) the event can be reliably measured.
C) the accountant determines that the event is important enough to be a business transaction.
D) both A and B occur.
2.1-11 A record of all the changes in a particular asset, liability, or shareholders’ equity during a period is called
a (n):
A) transaction.
B) trial balance.
C) journal
D) account.
2.1-12 Which of the following is NOT an asset account?
A) Accounts Receivable
B) Prepaid Rent
C) Share Capital
D) All of these are asset accounts.
2.1-13 Any event that has a financial impact on the business and can be measured reliably is a(n):
A) income statement.
B) transaction.
C) asset.
D) journal.
2.1-14 The rules for recording accounting transactions do NOT include which of the following?
A) Every transaction’s net amount on the left side of the equation must equal the net amount on the right
side.
B) Both sides of the accounting equation must be affected.
C) Every transaction affects the financial statements of the business.
D) Total assets must always equal total liabilities plus total equity.
2.1-15 Prepaid expense accounts appear on:
A) the Income Statement.
B) the Balance Sheet.
C) the Statement of Changes in Equity and on the Income Statement.
D) both the Income Statement and Balance Sheet.
2.1-16 Revenues are recorded when:
A) the company signs a contract.
B)work is begun on the job.
C) cash is received from the customer.
D) the work is completed on the job, whether or not the cash is received.
2.1-17 Goods purchased on account for future use in the business, such as Office Supplies, are called:
A) Accrued liabilities.
B) Prepaid expenses.
C) Revenues.
D) Expenses.
2.1-18 A company received cash in exchange for issuing shares. This transaction increased assets and:
A) increased expenses.
B) increased revenues.
C) increased liabilities.
D) increased equity.
2.1-19 When a business makes a sale on account, the asset created is a(n):
A) revenue.
B) expense.
C) account receivable.
D) account payable.
2.1-20 The debt created by a business when it makes a purchase on account is a(n):
A. account receivable.
B. revenue.
C. prepaid expense.
D. account payable.
2.1-21 Transactions affecting Shareholders’ Equity include:
A) sale of ordinary shares and payment of expenses.
B) revenues and purchase of supplies on account.
C) purchase of land and a sale on account.
D) payment of a liability and payment of expenses.
2.1-22 A company purchased Office Supplies for cash. This transaction increased assets and:
A) increased equity.
B) increased liabilities.
C) increased revenues.
D) decreased assets.
2.1-23 A company performed services for a customer on account. This transaction increased assets and:
A) decreased equity.
B) increased liabilities.
C) increased expenses.
D) increased revenues
2.1-24 A company paid cash for employee wages. This transaction:
A) increased cash and increased expenses.
B) increased cash and decreased expenses.
C) decreased cash and increased expenses.
D) decreased cash and decreased revenues.
2.1-25 A company paid cash for an amount owed to a creditor. This transaction decreased cash and:
A) decreased revenues.
B) decreased liabilities.
C) decreased expenses.
D) increased expenses.
2.1-26 The owner of a business paid cash from his personal checking account to purchase an automobile for his
personal use. This transaction:
A) increased a liability account and increased liabilities.
B) decreased cash and increased expenses.
C) increased assets and increased owners’ equity.
D) is not a transaction recognized by the business.
2.1-27 Which type of account is increased when a company records an increase in debt?
A) Expense
B) Retained earnings
C) Liability
D) None of the above
2.1-28 All of the following accounts would be considered assets EXCEPT for:
A) Cash.
B) Retained earnings.
C) Prepaid expenses.
D) Notes receivable.
2.1-29 What type of account is prepaid insurance?
A) A liability
B) An expense
C) Shareholders’ equity
D) An asset
2.1-30 Which of the following accounts are a standard component of shareholders’ equity?
A) Prepaid Expenses
B) Dividends
C) Additional Paid In Shares
D) Unearned Income
2.1-31 Notes payable, accounts payable, taxes payable and salaries payable are all examples of:
A) liabilities.
B) revenues.
C) expenses.
D) assets.
2.1-32 Which type of account is decreased when a company pays its employees with cash?
A) A liability
B) A prepaid asset
C) An asset
D) Owners’ equity
2.1-33 Which of the following business events would NOT be recorded in a company’s accounting records?
A) The company paid a monthly utility bill of $1,000.
B) The company issued 100 ordinary shares for $75,000.
C) The company purchased two acres of land for future plant expansion for $600,000.
D) The company signed a contract to provide services in the next accounting period for $125,000.
2.1-34 Which of the following transactions would increase total assets?
I. Borrowed cash on a note payable, $80,000
II. Provided services on account, $10,000
III. Received cash from a customer as payment on account, $8,000
IV. Received a utility bill, $1,200
A) I and II
B) I and III
C) I, II, and III
D) All of these answers are correct.
2.1-35 Consider the following transactions:
I. Borrowed cash on a note payable, $80,000
II. Provided services on account, $10,000
III. Received cash from a customer as payment on account, $8,000
IV. Received a utility bill, $1,200
Total assets would be:
A) $96,800.
B) $88,000.
C) $90,000.
D) $98,000.
2.1-36 The payment of an amount owed to a creditor would:
A) decrease assets.
B) increase net income.
C) decrease liabilities.
D) both decrease assets and decrease liabilities.
2.1-37 The payment of salaries to employees would:
A) increase assets and increase liabilities.
B) decrease net income and decrease assets.
C) increase liabilities and increase net income.
D) decrease assets and increase liabilities.
2.1-38 When a company performs a service and immediately collects the cash from the customer, which of the
following would occur?
A) Shareholders’ equity would decrease.
B) Assets would decrease.
C) Expenses would decrease.
D) Net income would increase.
2.1-39 Purchasing supplies on account would:
A) increase total assets and decrease total liabilities.
B) increase total liabilities and decrease total assets.
C) increase total assets and increase total liabilities.
D) increase total liabilities and increase shareholders’ equity.
2.1-40 Paying a utility bill as soon as it was received would:
A) increase expenses.
B) increase liabilities.
C) increase owners’ equity.
D) decrease revenues.
2.1-41 Borrowing money from the bank by signing a note payable would:
A) increase shareholders’ equity.
B) have no effect on shareholders’ equity.
C) decrease liabilities.
D) increase net income.
2.1-42 Receiving a payment from a customer on account would:
A) increase shareholders’ equity.
B) have no effect on total assets.
C) increase shareholders’ equity.
D) decrease liabilities.
2.1-43 The purchase of land for cash would:
A) increase total assets.
B) decrease shareholders’ equity.
C) increase the total debits on the trial balance.
D) have no effect on total assets.
2.1-44 If a person starting a business had an investment of a building, valued at $300,000 with an $180,000
outstanding mortgage and issued shares for the balance, the effect would be to:
A) increase assets by $120,000.
B) increase assets by $180,000.
C) increase shareholders’ equity by $120,000.
D) increase shareholders’ equity by $300,000.
2.1-45 Performing services on account would:
A) decrease both assets and liabilities.
B) increase assets and decrease shareholders’ equity.
C) decrease revenues and decrease shareholders’ equity.
D) increase net income and shareholders’ equity.
2.1-46 The collection of cash from a cash sale would:
A) increase assets and shareholders’ equity.
B) increase assets and decrease liabilities.
C) decrease assets and increase net income.
D) have no effect on net income or shareholders’ equity.
2.1-47 Cash dividends paid to the shareholders will:
A) increase assets and decrease liabilities.
B) increase assets and increase liabilities.
C) have no effect on shareholders’ equity or revenues.
D) decrease assets and decrease shareholders’ equity.
2.1-48 Consider the following transactions:
I. Borrowed cash on a note payable, $80,000
II. Provided services on account, $10,000
III. Received cash from a customer as payment on account, $8,000
IV. Received a utility bill, $1,200
Total liabilities would be:
A) $1,200.
B) $81,200.
C) $98,000.
D) $80,000.
2.1-49 Consider the following transactions:
I. Owners invested $8,000 cash to begin the business
II. Provided services for cash, $6,000
III. Provided services on account, $4,000
IV. Paid cash for expenses, $7,500
How much cash does the business have?
A) $ 2,500
B) $ 4,500
C) $ 6,500
D) $10,500
2.1-50 Consider the following transactions:
I. Owners invested $8,000 cash to begin the business
II. Provided services for cash, $6,000
III. Provided services on account, $4,000
IV. Paid cash for expenses, $7,500
How much net income did the business have?
A) $ 2,500
B) $ 4,500
C) $ 6,500
D) $10,500
2.1-51 All of the statements are true about the income statement EXCEPT the income statement:
A) data appears as revenues and expenses under Retained Earnings.
B) reports revenues and expenses.
C) reports a net income or a net loss.
D) is as of a specific date and not a period of time.
2.1-52 The Statement of Changes in Equity:
A) adds net income from the Income Statement to the beginning retained earnings and subtracts
dividends from the beginning retained earnings.
B) reconciles the movements in equity for the period.
C) lists ending equity as the final result.
D) all of the above.
2.1-53 The Balance Sheet lists:
A) assets, liabilities, and revenues.
B) revenues and expenses.
C) assets, liabilities, and shareholders’ equity.
D) dividends and assets.
2.1-54 If Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building
$40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for
$5,000 cash, and paid utilities of $2,000 cash, what is the company’s net income for the month?
A) $8,000
B) $5,000
C) $3,000
D) None of the above
2.1-55 Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building
$40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for
$5,000 cash, and paid utilities of $2,000 cash. What is the amount of total assets?
A) $80,000
B) $78,000
C) $88,000
D None of the above
2.1-56. Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building
$40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for
$5,000 cash, and paid utilities of $2,000 cash. The amount of shareholders’ equity at the end of the
period is:
A) $60,000.
B) $80,000.
C) $140,000.
D) none of the above.
2.2-1 An account with a normal debit balance indicates that the account is a liability account.
2.2-2 The amount remaining in an account is called its balance.
2.2-3 Double-entry accounting records only those transactions affecting the income statement.